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Autoliv Beats but Profits Dip

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Autoliv Inc. (ALV - Analyst Report) saw a 14.7% fall in earnings per share to $1.45 in the fourth quarter of 2012 from $1.70 a year ago due to capacity alignment and antitrust investigation costs (7 cents) and increase in shares outstanding (4 cents) by 2.7% to 95.8 million, partially offset by a lower effective tax rate (12 cents). However, EPS exceeded the Zacks Consensus Estimate of $1.32.

Net income declined 12.5% to $138.7 million but consolidated revenues rose marginally by 0.4% to $2.1 billion due to higher sales of Seatbelt and Active Safety products, partially offset by lower Airbag product sales.

Organic sales (sales excluding the impact of acquisitions/divestitures and exchange rates) went up 1.5% in the quarter, driven by higher light vehicle production (LVP) in North America and vehicle launches as well as the recovery in LVP from the flooding in Thailand.

Operating income declined 22.2% to $174.3 million due to higher other operating expenses mainly related to higher costs for capacity alignments and the antitrust investigations. Operating margin declined 2.5 percentage points to 8.5% in the quarter.

Segment Details

Sales of Airbag Products (including steering wheels and passive safety electronics) inched down 1% to $1.3 billion driven by negative currency effects, leading to flat organic sales. Sales were favorably affected by higher volumes of steering wheels, knee airbags and pedestrian protection airbags, which were fully offset by lower sales of airbag electronics and inflators, and side curtain airbags.

Sales of Seatbelt Products slid 1% to $658 million due to negative currency effects and divestiture. Hence, organic sales grew 1% excluding these effects. Sales were negatively affected by the sharp fall in LVP in Western Europe but it continued to be strong in North America, the Rest of Asia region and China.

Sales of Active Safety Products (primarily automotive radar, mono-vision and night vision systems) swelled 44% to $64 million and organically by 45% from the fourth quarter of 2011. This increase was mainly attributable to new radar business for Mercedes and Cadillac models as well as new camera business with many BMW models.

Consolidated revenues inched up 0.4% to $8.3 billion while organic sales increased 4%. The marginal increase was attributable to an 8% decline in LVP in Western Europe and lower market share in Japan where LVP grew at a fast pace.

Financial Position

Autoliv had cash and cash equivalents of $977.7 million as of Dec 31, 2012 compared with $739.2 million as of Dec 31, 2011. Total debt was reduced to $632.7 million as of Dec 31, 2012 from $666.3 million as of Dec 31, 2011. Consequently, the debt-to-capitalization ratio declined to 14.4% from 16.7% a year ago.

In 2012, the company’s cash flow from operations deteriorated 9.2% to $688.5 million from $758.2 million a year ago, due to lower profits. Capital expenditures (net) increased to $360.4 million from $357.0 million in the prior year.

Guidance

Autoliv expects consolidated revenues to decline in line with organic sales increase of 4% in the first quarter of 2012. Excluding capacity alignments costs and antitrust investigations expenses, the company expects operating margin of 8% in the quarter.

For the full year 2013, Autoliv anticipates organic sales to grow between 1% and 3% and operating margin of 9%, excluding costs for capacity alignments and antitrust investigations. Consequently, consolidated sales are expected to grow between 2% and 4%.

The company expects to generate a strong cash flow of 700 million in 2013, while capital expenditures are expected to increase only marginally from 2012.

Our Take

Autoliv has a stable market share in both airbag modules and seat belts in North America, Europe and Asia. The company has continuously expanded in low-cost countries, including Romania and China, in order to meet local demand and to consolidate manufacturing from high-cost countries.

However, we are concerned about the company’s increased raw material costs. Further, the company faces significant customer concentration risks as its top-5 represent about 60% of sales.

Due to these factors, the company retains a Zacks Rank #3 on its stock, which translates to a Hold rating for the short term (1–3 months). Other stocks that are performing well in the industry include Oshkosh Corporation (OSK - Snapshot Report). This company carries a Zacks Rank #1 (Strong Buy).

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